The federal budget deficit, that persistent gap between the nation’s current spending and its income, has taken a surprising dip.
Instead of growing by $845 billion this year, as was forecast a few months ago, the national debt is now expected to grow by only $642 billion. And the Congressional Budget Office had more good news. Tax revenue is expected to increase faster than federal spending for the next two years.
What happened to the fiscal cliff the country was supposed to plunge over? It was flattened out by a growing economy, higher tax revenues, stronger than expected performances by mortgage agencies Fannie Mae and Freddie Mac, modest federal spending cuts and lower-than-expected spending on interest on the federal debt and on entitlement programs.
That’s all very encouraging and hopeful. But don’t let the slower rate of borrowing lull you into thinking that a big deficit is an overblown concern of conservative lawmakers who use it as an excuse to cut government programs. The raw numbers remain troublingly large. Last year the country spent nearly $8,000 more per taxpayer that it raised in revenue. Now, instead of spending about $6,000 more per taxpayer than taxpayers are actually paying, we’re told circumstances have improved and that we’ll only need to spend about $4,600 more.
The news is welcomed, but pardon our refusal to celebrate.
Congress remains nowhere near a plan to put Medicare and Social Security on more sustainable paths. Lawmakers now feel less pressure to tackle tax reform.
Democrats and Republicans still cannot agree on a budget. The federal government is running on a string of appropriation bills and continuing resolutions. The political parties are no closer to compromise on the debt ceiling and its looming threat to the credit rating of U.S. bonds.
The country hit its latest debt ceiling on May 18, which oddly was a date instead of a number. It wasn’t big news because everyone knows the Treasury Department can keep everything going until September. It will again use extraordinary accounting techniques that are becoming ordinary.
The Congressional Budget Office continues to warn of financial challenges ahead, “because of the pressures of an aging population, rising health care costs, an expansion of federal subsidies for health insurance and growing interest payments on federal debt.”
In our fourth year of recovery from the Great Recession of 2007-09, the unemployment rate was down to 7.5 percent in April, with the economy growing at an encouraging rate of 2.5 percent in the first quarter. The companies of the S&P 500 have doubled their profits since 2009. Yet the total number of Americans working remains far short of the peak employment of 2007-08.
The high price of oil remains an economic drag. Remember that in the economically booming 1990s, the inflation-adjusted price of a barrel of oil averaged about $28 for the decade.
The next decade saw it average above $50. More recently, as it approached $100, the country fell into recession. In the past four and half years, a barrel of crude oil has cost more than $85, quite high by historic standards.
The high costs of fuel help explain the renewed interest in urban living and the increased use of public transit. And with prices at the pump taking such a big bite out of workers’ incomes, there should be increasing agreement that more spending on bus and rail transit would be a wise investment in urban areas like Tampa.
As for the broader economy, so many factors have an influence that it’s hard to figure out how things got as they are, much less to predict how they’ll be next year.
But it seems reasonable to conclude, as we see the economic growth return along with increases in tax revenue, that were Congress to summon the political courage to pay more of our bills as we go, the country would find itself on a path to a more prosperous future.